Category Archives: Starting or Growing a Business

Obtaining Credit – Even When Lenders Are Leery

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Les Mathews, Mesa Capital Partners

Les Mathews, Mesa Capital Partners

The worldwide credit crunch has tightened credit availability for even the largest companies, and that has also made it more difficult for smaller companies to obtain credit for expansion and working capital. Banks, the traditional sources of loans for smaller businesses, have been forced to raise credit standards and make more cautious loans to smaller businesses, which causes a significant reduction in credit availability, higher borrowing costs and more restrictive credit terms.

As a result, smaller companies, the mainstay of New Mexico’s economy, are seeking more innovative ways to finance their operations and growth. This is particularly true for the state’s early-stage businesses: Most have no history of generating positive cash flows, and most have few unencumbered assets and minimal or negative net worth — all of which make them seem too risky in the eyes of loan officers at traditional banks.

Many owners of early-stage businesses have tried to overcome this problem by offering their personal residences as collateral for business loans. But with the mortgage market meltdown and stagnancy in the residential real-estate market, banks are getting more cautious about hedging bets even on this traditionally most stable and secure form of collateral.

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Equity Capital: Show Me the Money – But How Much?

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Tom Stephenson, Managing General Partner, The Verge Fund

Tom Stephenson, Managing General Partner, The Verge Fund

Once you’ve decided to finance your new business with equity capital and reconciled yourself to sharing ownership with a partner or partners for several years, it’s time to decide how much money you should raise and when to do it.

It’s not as simple as predicting how much cash you’ll need in the early years and setting off to raise that amount all at once. What you decide at the beginning has a great bearing on how much of your business you’ll own a few years down the road when it becomes self-sustaining.

If you decide instead to raise the money in multiple rounds, you give up less equity in the long run. You might even become established enough to forgo further equity financing and instead borrow money through a traditional loan.

Transaction costs and investor needs often frame this funding decision.

Understand transaction costs

Raising money costs money — and time. The biggest time-consumer involves managing the equity-investment transaction: reviewing documents, preparing due-diligence materials and negotiating specifics of the deal.
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Springboard Gives Entrepreneurs a Boost

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Tatjana Rosev

Tatjana Rosev, Los Alamos Nat’l Lab Communications Office

The most successful entrepreneurs recognize the benefits of networking with external experts — service providers, industry consultants, venture capitalists, business coaches and successful CEOs — when starting or building a company, especially when the economic forecast is uncertain and entrepreneurial confidence is at an ebb.

But there’s more to effective networking than passing out business cards and attending seminars to meet and interact with influential others. It also requires connecting with individuals locally and nationally who have a vested interest in helping entrepreneurs take their companies to the next stage.

Wise Counsel

Business coaching is a powerful, collaborative relationship between an entrepreneur and a coach/consultant who is more versed and better established in a particular industry or discipline than the business owner and has better access to human and financial resources. Being trained by a coach how to identify, evaluate and overcome obstacles to growth can help the entrepreneur achieve his or her goals faster and more effectively. Northern New Mexico Connect’s Springboard program offers free coaching to technology entrepreneurs in Northern New Mexico whose companies are at various stages of development.
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Are You Ready to be Your Own Boss?

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J. Roy Miller, State Director, NMSBDC Network

J. Roy Miller, State Director, NMSBDC Network

It’s often said that more people start businesses during economic slumps than when the economy hums. This seems counterintuitive because when recession seizes the economy or seems to be stalking it, consumers limit purchases, businesses slow production and workers lose their jobs. But after an extensive job hunt, many laid-off workers see starting a business as a lot less risky than working for someone else.

The dream of running one’s own business has been part of American culture for centuries, championed in films, music and literature. Small business drives the U.S. economy, employing half of all private-sector workers, according to the latest statistics from the U.S. Small Business Administration. All of those businesses started with an individual who envisioned doing things independently.

How do you know if you have what it takes to be your own boss?  Consider the following questions, and be brutally honest with yourself when answering.

Do you have the right character to start a business? Are you a leader and self-starter? Can you handle stress? Are you and your family prepared for the likelihood that you — and they — might be working long hours?

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Free Money for Your Business? Yeah, Right!

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Sandra Taylor Sawyer, Director, NMSBDC at Clovis Community College

Sandra Taylor Sawyer, Director, NMSBDC at Clovis Community College

With lenders becoming less willing to extend lower-interest credit in an unpredictable economy, it’s understandable that entrepreneurs might be tempted to respond to one of the offers of “free money” that are ubiquitous on late-night or daytime television.

Many of us have seen the commercials starring the guy in the question-mark suit and polka-dot bow tie who has been a mainstay of non-prime time television for years. This guy has made a fortune writing numerous books that claim to direct readers to “free” government money to start businesses, build homes, pay bills and so on.

And he’s not the only one making such assertions. Plenty of lower-profile hustlers claim inside information about free money that’s available to help people start a business. Their advertisements include enticements to send money or attend a seminar to learn where and how to get these grants (for $399.95 to $900 or more!). Once hooked, the hapless prospector learns that the “inside” information originated on the Internet or in government records that outline technical-assistance programs for businesses or money for nonprofit organizations that provide health services, business advice or community activities for young people.

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Getting Help When Going Solo

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Kim T. Blueher, Director of Lending, WESST Corp.

Kim T. Blueher, Director of Lending, WESST Corp.

When you work for someone else, the job comes with a boss and co-workers. It might include people to supervise. You get a paycheck every two weeks. If you need something — envelopes, printer cartridges, gas for the company vehicle — you ask the person in charge of supplies. If you have trouble with a customer, you ask your boss for advice. You probably spend lots of time commiserating with co-workers about all sorts of things — the cranky receptionist, the dirty bathrooms, the broken air conditioner — or celebrating a major achievement or each other’s birthdays.

It’s an entirely different world when you’re self-employed. If you need envelopes, you have to go to the store and buy them. You have no one to commiserate with, and that paycheck might not be so steady.  And guess who gets to soothe the unhappy customer?

Working solo, it’s up to you to offer the best possible product or service. You alone are responsible for developing and implementing a marketing plan. You spend hours building and maintaining relationships with customers and researching, purchasing and maintaining your own equipment. It’s your job to keep the office clean and the lights and air conditioning working and to pull the weeds that grow around your building, whether you own it or not.

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Cash Flow: Timing Is Everything

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Leslie Hoffman

Leslie Hoffman, Director of Lending & Client Service, ACCION New Mexico

Ever had a friend who seemed to have it all – high-paying job, nice car, beautiful home and plenty of toys to fill the garage? But at the end of the month, your successful friend doesn’t seem to have $10 to his name. Turns out he has been pouring all those earnings into the house, the car and the toys. Perhaps he can afford them all, but he could certainly use a lesson in cash flow management.

This illustrates a critical lesson for business owners: profitable companies can go bankrupt. It may seem counterintuitive – a business that lands in the black can simultaneously be putting itself out of business.  But business owners who fail to manage cash flow can find themselves much like that friend – with positive earnings but no cash to pay bills. Continue reading →

Solutions: You’ve Come to the Right Place!

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Paul F. Goblet, Investment Advisor, NMSBIC

Paul F. Goblet, Investment Advisor, NMSBIC

During the past six months, the New Mexico Small Business Investment Corporation (NMSBIC) and its partners have created a series of business-related articles and a web site to provide information and resources to New Mexico business owners and entrepreneurs. If you are reading this article in a newspaper, you can thank the editors of the publication in which it appears for supporting economic development in your community. The Finance New Mexico initiative has been a collaborative effort that has relied on the simultaneous actions of entities in both the public and private sectors across the entire state.

Why? It was and still is our collective belief that if we provide timely, well-written articles containing useful information about the resources available to all small businesses, it will help strengthen local businesses and communities. Those resources include services, advice, technical assistance and training – all of which prepare current and future business owners.

The network of Small Business Development Centers (NMSBDC) is one such resource. Located in 20 communities around the state, these centers provide classes, consulting and business advice – much of it for free – to hundreds of businesses. WESST Corp. provides technical assistance and training workshops on topics such as creating a business plan – something that can be of critical value to comprehensive understanding of the challenges and opportunities confronting your business. These resource-services can help you prepare to access capital more successfully, and this is something in which the NMSBIC is particularly interested.
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Fund Fills the Gap in Seed-Stage Investments

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Trevor Loy, Managing Partner, Flywheel Ventures

Trevor Loy, Managing Partner, Flywheel Ventures

Yogi Berra once famously said about his favorite restaurant: “It’s so crowded, no one goes there anymore.” The same could be said about seed-stage investing and today’s venture capital investors.

For several decades, the VC industry has delivered above-average risk-adjusted financial returns, and capital invested in venture capital funds has grown exponentially. While capital has increased, the number of qualified professionals in the VC industry has only grown slightly. The result is that each individual VC professional now manages considerably more capital than before, but their available time has not changed. As a result, almost no professional VC firm can consider initial investments of as little as $50,000 – typical of seed-stage investments – especially when these investments may well require similar time commitments to those of $5 million.   The aggregate result is clearly seen in industry data, which shows a drop in professional VC seed-stage investing of at least 50% over the past ten years.
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The Business Plan: Your Guide to Success

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J. Roy Miller, State Director, NMSBDC

J. Roy Miller, State Director, NMSBDC

Imagine you are starting a trip. Where are you going? How will you get there? A plan helps you chart the best course, ensures that you follow your route, alerts you to important landmarks and reminds you of your schedule and budget.

You wouldn’t embark on a trip without a plan so why would you start a business without one? Studies have shown that the failure rate of start-ups without business plans is three times higher than that of businesses whose owners prepared a plan.

A business plan provides you with the analysis needed to decide whether it is in your financial interest to go into the business. If you decide to continue exploring the idea, this analysis is critical to obtaining the main thing that fuels the business world: capital. A plan helps the prospective investor – be it your banker or brother-in-law – determine the merits of the “deal.”

Plans can be as short as one page or as long as one hundred; most are between twenty-five and fifty pages in length. Whatever length and style is suitable for you, your plan should, at a minimum, contain the following information:
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